Keydata savers may lose the lot

Savers with failed investment firm Keydata are reeling after being told they may have lost their savings.This week, administrator PricewaterhouseCoopers revealed the latest horror in the saga of Keydata, which collapsed in June.

Hundreds found out that their money, which they thought was
invested by Keydata to provide them with a steady income, wasn't
actually invested or had been put into the wrong funds.

At the same time, about 5,500 savers with three types of
Secure Income Bond managed by Keydata were told there is only a
'minimal' chance of seeing even a small slice of their money.

The Wheelers lost 'an awful lot of money' with the collapse of Keydata

Their only hope is if the Financial Services Compensation Scheme steps in.

Others who invested in Income Property Bonds are also facing
bleak news. Their money was placed in two U.S. property developments,
including condominiums in Florida. Some of the investors' money was
used to pay for refurbishing these properties.

But the firm behind these properties has defaulted on bank
loans, the properties are unfinished and in negative equity, and the
bank has lodged four closure notices on the development.

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These latest revelations are a further kick in the teeth to about 85,000 investors, many of them elderly savers wooed by the prospect of a regular savings income of 7 per cent, who trusted Keydata with their cash.

They put their money into structured products, which promised a set income or capital growth if savings were locked up for a number of years.

Investors have told how their initial concerns about this type of investment were calmed by marketing material that boasted the funds were backed by giant international banks such as HSBC and Fortis.

But last week Money Mail revealed how thousands of Keydata customers will have to complete tax returns for savings they thought were in tax-free Isas.

And they might also have to fork out thousands of pounds for income payments they've received in previous years. Keydata was put into administration after an investigation by the Financial Services Authority revealed investments sold as being Isa-compliant never qualified for tax-free status.

The firm owes HM Revenue & Customs £12.7million - a debt which toppled it into insolvency. Once Key-data's accounts were handed over to PWC, it uncovered a catalogue of problems.

The 5,500 investors with Secure Income Bonds found the underlying investments of life insurance policies for American pensioners held by a company called SLS had disappeared.

As a result, around £4million of income payments for the previous nine months had come directly from Keydata's own pockets. The FSA and the Serious Fraud Office are investigating.

More than 300 creditors attended a meeting on Monday held by PWC. Many say they were told by administrator Dan Schwarzmann that the best action might be to start their own private lawsuits against those who sold them the investments.

'This is an extremely complicated-process, and the further we delve into the business, the more we find out,' says Mr Schwarzmann. 'A number of other groups involved, such as the Serious Fraud Office, are also conducting an investigation.

'As administrators, our principal task is to get as much back for the creditors and investors as possible, and we will use whatever appropriate means at our disposal to do that.'

Before the Financial Services Compensation Scheme can be brought in, Keydata has to be declared in default. Once this happens, investors can get a maximum of £48,000 (100 per cent of the first £30,000 and 90 per cent of the next £20,000).

Meanwhile, those who lost money in structured investments backed by failed bank Lehman Brothers are left in limbo. Retired English teacher Gillian Wheeler, 75, was advised to put thousands of pounds of savings in Keydata Secure Income Bond 2 in 2005.

This is one of the investments where underlying funds disappeared. For four years it paid her a quarterly income of £400, which supplemented her pension. The first she knew of it going into administration was when she read about it in the Daily Mail.

Gillian, who lives with husband Terry, 78 a retired businessman, in Oxfordshire, says: 'It's an awful lot of money for me to lose. My only hope is that it is declared in default of the compensation scheme and we can get money back. How could the authorities allow this to go on for so long without noticing a problem?'

All complaints to the Financial Ombudsman Service were suspended when
the FSA stepped in to investigate in May. Its decision has been delayed
for a further three months.